Deviation of Exchange Rate from its Equilibrium Trend and its Impact on Economical Growth in Iran

Considering the variations in the exchange rate system in Iran during the past years and the effects of these variations on the creation of misalignment, the recognition of the problem of deviation of the exchange rate from its equilibrium trend and the effect of these changes on the macroeconomic variables can offer a remedy to economic policy makers, which can be used in economic planning. In this paper, having shown the presence of the deviation of the exchange rate from its equilibrium trend, the paper examine the effects of this variable on Iran's economy using appropriate definitions of deviation of the exchange rate and explanation of economic growth models. To this end, using annual data for years 1959-2004 and with the use of VAR and VECM the short and the long- run relationship between the two variables,i.e., deviation from equilibrium exchange rate trend and economic growth, have been examined and it was shown that there is a positive and meaningful relationship between the two variables in the short run, but in the long run the relationship between the two variables was found to be negative.